Quotes And Hourly Rates Are Flawed

Normally when engaging with a software development company, pricing the project is both a tricky and delicate process. It can be complicated to figure out how much a project and ongoing support and feature development should cost.

The software development client usually wants some sort of fixed quote or price for the project. This can be very difficult to estimate when the project is not completely trivial and predictable. Most interesting projects are not trivial or predictable. Because they often are complicated, the software development company will put a pretty big buffer on the project. Sometimes they will add up to 50% or even more, just to make sure they don't end up losing money on the whole project.  Because you have to quote everything up front, it leads to a lot more work up front, instead of just getting on with the development. And because the development company added a big buffer, the client usually will then start negotiating down the quoted price. Not a great solution.

The other common way of doing a contract is an hourly rate per consultant. This is great for the software development company. Predictable income with no risk at all. However, this is not great for the client, as they need to completely trust the software development company. The client needs to know that the development company is not just clocking up hours. Also, the total cost of the project can very quickly get a lot bigger than the client can handle. And then kill the clients cash flow completely.

Is there a better way? 

Yes, we believe there is a much better way, the software partnership contract.

The Software Partnership Contract

The software partnership contract is designed to be a mutually beneficial and fair contract.

It consists of the following:

1. Quoted price for the development of the MVP or 1st version.

2. After delivery of the MVP and 1st version:

A monthly fee which is based on the highest of the following two:

Minimum fee which is fixed or a royalty or software transaction usage fee.

The goal here is that the royalty or usage fee will overtake the minimum fee over time. 

How Does It Work

The 2 main goals for the software partnership contract is cash flow and incentive. For our clients it is important to have the software project not kill their cash flow in one big hit. It is also important for our clients to have a predictable expense. For us, it is important to have the right incentive to do an awesome job. We then know that if we help our clients increase turn over and profit margins, there is a monetary incentive in it for us. We both benefit from our clients doing well. This is what most other contracts are missing. They usually are designed to safe guard yourself. Not create incentive to do a great job together.

This contract changes the mindset of our clients as well. They immediately know that we just want them to do well and have great success. This is a very powerful change in attitude. And so far has lead to several very successful projects. If this resonates with you, please don't hesitate to get in touch and so we can help your business thrive.

Need more details? Contact us

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